Alternative Insight

The New Statism
The Rise of Corporate States

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A new statism, in various prescriptions, exercises control over the political, moral, economic and social fabric of several nations and has the potential to control the destiny of the world.

United States President George W. Bush pledged to bring democracy and free market economics throughout the world. Many observers interpreted his statement to mean bringing U.S. dominance throughout the world and disguising the adventure with the trappings of democracy. In any event, apart from the new Central European nations established within the framework of the European Community, democracy has not flourished - just the opposite - the world has witnessed the expansion of statism; state interference in economy with trappings of free market economics. These "free" markets can better be described by a term allied with fascism, the corporate state.

The new statism has several identifying characteristics:

The government allows free enterprise, but invests in some industries (mixed economy) and controls significant industries, especially those related to national defense, resources, communications and media. In some cases it also has extensive land ownership.
The government regulates, either directly or indirectly, international money transfers, international trade, wages, prices, internal investment and, in some cases, the labor market.
The government promotes nationalism, reinforces a chauvinistic identification among its people and allies the education system with these efforts.
The government exercises powers that lessen opposition and prevent excessive dissent.

China and Russia are the most prominent nations that reflect the new statism. These former communist nations have redirected themselves and overcome significant political and economic defects associated with totally managed economies. Many developing nations incorporate several statist characteristics in their political system. Poland, South Africa, Indonesia, Singapore and India have State Organized Enterprises (SOE) and, to some degree, together with Israel, have incorporated essential features of the new statism. Resource rich states, such as Venezuela and Bolivia have embarked in a statist direction.

With China growing rapidly and privatization proceeding, it is difficult to ascertain the exact status of China's public ownership. Statistics indicate that China's fully state owned enterprises (SOE) add value to much of China's industrial production. The government has about 17,000 partially owned enterprises. Almost 200 are major and are represented in about 45% of the nation's productive enterprises. State monopolized industries are in petroleum (PetroChina, SinoPec, CNOOC), telecommunications (China Mobile, China Telecom), steel (Baosteel,) materials (China Shenhua, China Aluminum) and electric power (State Grid). China also has a huge tobacco monopoly. The monopoly SOEs, as in all monopolies, can manipulate prices in fast growing economic systems.

Private enterprises are increasing with less barriers to foreign investment. Nevertheless, the Chinese government still controls much of the legal, political, social and economic aspects of Chinese life. Investment can be channeled to favor certain corporations, labor can be moved to favor certain industries, regulations can be arbitrarily applied without democratic approval, as long as the regulations don't violate international treaties and don't prejudice China's commitments to the World Trade Organization (WTO). Private enterprise is growing , but under the watchful presence of a domineering government. By pursuing a mixed economy of partial liberal economics and statism, China senses it has resolved the problems associated with its previous mis-managed economy and with communist systems.

Supply for consumer markets is dictated by international demand rather than by government action. China supplies labor and resources and foreign investors supply much of the capital that makes China the manufacturer for the world. Chinese workers use the income to purchase part of the consumer demand and the surplus is exported to foreign markets. By partial ownership, taxes and license fees, the Chinese government gains revenue for financing its capital intensive projects .

Allocation of resources, another difficulty in managed economies, is now more efficiently performed by market oriented managers, so that supply approximates a demand dictated by international needs. Unprofitable enterprises are quickly located and resources easily move from the slackers to the more efficient. This includes labor, which is represented by an All-China Federation of Trade Unions and is still indirectly controlled by the government.

Over-production is minimized and surplus is distributed. The Chinese masses can absorb surplus production that can't be exported. If necessary, the government can subsidize the prices.

Since the Yuan is mainly a domestic currency (Hong Kong, Taiwan, Vietnam and Singapore use the Yuan), unlike the omnipresent can Dollar and Euro, the Chinese authority can exchange the national currency for foreign currency acquired by export. The government maintains the Yuan at a value favorable to its economic growth, which is a cheaper Yuan for cheaper exports. With the huge accumulated reserves, the government SOE's wander the word and invest in other countries, unlike governments of democratic nations that can only make loans or give mutual assistance.

From Mining Weekly, Sept. 28, 2007
"It is estimated that some 800 Chinese SOEs are active in Africa today, covering every country, although this figure includes provincially owned as well as nationally owned companies, as well as companies that are trading, not investing, and companies whose activities have nothing to do with natural resources or China’s strategy for obtaining these resources. 'China is trying to move from being subject to price and supply risk takers on international markets to owning, operating, and refining the resource, thereby gaining some price and supply security.”'

Present day China most represents the corporate state, where labor and resources are controlled, stability is guaranteed and corporations partner with the Chinese government for mutual benefits.

Russia is not as advanced in statism as is China, but is growing in that direction - possibly due to the conclusion that the Chinese model can serve the former leading republic of a defunct Soviet Union. One difference between the former communist states is that China has inexpensive labor for competitive manufacturing industries while Russia has raw materials for capital intensive industries. Russia has gone from a nation which had oversupply to an unknown demand to a nation that had great demands and no supply and now to a nation in which internal demands are met by external supply and external demands are met by Russia's supply of its natural resources.

The Putin era has transferred ownership and power from oligarchs who had little regard to the population needs to a state that controls essential industries. The state claims to use its controlled surplus for social benefit and internal investment. The investment reduces unemployment and provides incentives for additional investment and private ownership. Noting the derogatory effects of a previous "wild capitalism," which included concentrations of production, resources and media in the hands of a relatively few oligarchs, Putin has diverted the previous concentrations to the government. The present Russian government has overwhelming participation in defense industries, some banking, oil and gas resources, several television stations and print media.

SOEs on a buying spree
David M. Woodruff, 11.7.2007 , The Expansion of State Ownership in Russia: Cause for Concern? Development and Transition forum
"According to researchers at Alfa-bank, in the middle of 2003 the Russian state owned stock worth about 20 percent of the capitalization of Russia’s stock market. By early 2007 the state’s share had risen to 35 percent....Defence firms in aviation and shipbuilding are consolidating into large new conglomerates under state ownership. The state’s arms-export firm Rosoboroneksport has taken control of assets in metallurgy and auto manufacturing."

Concentration of economic power has been complemented by concentration of political power in a single Party. Of eight Parties in the Dumas, Putin's United Russia has a majority control of 305 out of 450 seats. United Russia's majority votes have allowed the government to transfer the selection of Provincial Governors from local election to being appointed by the President and ratified by the Dumas. Non-governmental Organizations (NGO) that undermine state power have been regulated and the government has been allowed to purchase print and television media. The Federal Secret Service (FSB), successor to the former KGB, has been strengthened and a mild suppression of persons and activities that "threaten the stability of the nation" has occurred.

Corporations want stability and the new Russia has given this directive a double barreled approach - acquire control of significant industries in energy, raw materials and defense and apply pressure against those who disturb the arranged harmony.

Several other nations, including Poland, South Africa, Indonesia, Singapore, Vietnam and India have SOEs that account for a major portion of their Gross domestic Product. India and Israel contain components of the statism system. Both of the latter countries are democratic nations with extensive free and private enterprises.

India has government majorities in many industries, some of which are totally state controlled.

A May 2006 World Bank report states:
"In India, there are 240 Public Sector Enterprises outside the financial sector. These enterprises produce 95 percent of India’s coal, 66 percent of its refined oil, 83 percent of its natural gas, 32 percent of its finished steel, 35 percent of its aluminum, and 27 percent of its nitrogenous fertilizer. Indian Railways alone employs 1.6 million people, making it the world’s largest commercial employer. Financial sector SOEs account for 75 percent of India’s banking assets."

The Indian bureaucracy has three types of SOEs. It has Departmental Enterprises, Statutory Corporations, which are established by an official act of the legislature and wholly owned by the state, and the Government Limited Companies. The latter are organized similar to companies in the private sector, but have the state as the principal shareholder. The statist feature of the limited company is that it co-operates in private sector ventures and does not have the same reporting requirements to Parliament that other Indian SOEs have.

Israel has several unique and not readily apparent statist features. With these features, the government regulates the factors of production.

Israel's government controls 90% of the land and, by this ownership, is able to regulate much of the nation's economic and social fabric. It also uses legal restrictions and directives to essentially regulate labor.
Discriminatory laws prejudice the education and economic development of its Arab citizens. This creates availability of a lower wage labor market of less skilled workers.
Intensive concentration on immigration provides a growing number of flexible and directed laborers.
The West Bank and Gazan Palestinians have for decades provided another massive group of lesser skilled and lower wage laborers.
Guest workers, who cannot obtain residency, are the another group of directed workers.

The Heritage Foundation, characterized as a right-wing think tank, concludes that "Israel is weak in business freedom and freedom from government. Complicated and inefficient bureaucracy makes closing a business difficult. Government spending is high, constituting over 40 percent of GDP, although revenue generated by state-owned businesses is not large. Though advanced for the region, Israel's financial sector is still subject to government intervention and control."

Venezuela and Bolivia are other nations that must be mentioned - they could initiate a trend.

Venezuela's President Hugo Chavez is prepared to amend the Venezuela constitution in order to give the government, which has seized majority control of its oil industry, additional control of essential sectors of the economy and permit him to continue running for president.
Bolivia's President Evo Morales is more cautious than Chavez and doesn't have the resources that Chavez manages. Nevertheless, he has nationalized Bolivia's gas reserves and is prepared to do more, if nationalization proves to increase employment and not decrease exports.
Ecuador President Rafael Correa has indicated he will be part of the trend and follow Chavez's statist policies. Correa, after being elected president in January 2006, informed the national assembly he will pave the way for socialism. He has still not detailed a program for accomplishing the task.

The Heritage Foundation Economic Freedom Ranking measures and ranks 161 countries across 10 specific freedoms. Where do the statist oriented nations rank in relation to the United States, which ranks as #4?
Israel: 37
India: 104
Bolivia: 112
China: 119
Russia: 120
Vietnam: 138
Venezuela:144

Except for Israel, the Statist oriented nations are close to the bottom of the Economic Freedom list and are grouped close to one another.

In a world accustomed to democratic capitalism, the growth of statism might seem only a slight perturbation in the trend to more democracy and more free enterprise. A closer survey shows otherwise. Most developing nations, and there are some exceptions, although they might be rich in raw materials, realize they cannot readily create industries that can compete with already developed nations that have established markets, communications, transportation and infrastructure. Nevertheless, developing nations will not permit oligarchs to control their economies and destinies, as happened in Russia, Africa, and Latin America. Russia, Venezuela and Bolivia are contemporary examples of government participation in finance, industry and markets in order to use the material resources for the benefit of the entire nation. Other newly developing states, which have inexpensive and adaptable labor and control investment, prices, wages and currency can produce products which preclude competition. With Russia supplying the material resources and China supplying the labor for manufacturing, the emerging statist nations have the capability to control resource distribution and value added manufacture.

The democratic capitalist nations previously extracted the material resources and inexpensive labor of a Third World for benefit of the western societies and domestic oligarchs. The developed world guided the destiny of the lesser developed world. The Third World now extracts capital from the developed nations and uses their own material resources and inexpensive labor for the benefit of their own peoples. The new statist nations are prepared to determine the destinies of all nations.

alternativeinsight
october, 2007

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